Returning to the framework on page 139 in Chapter 37, at the team level of value-added outcomes, companies can use gainsharing to reward teams that produce the gains. Bob Doyle, who pioneered the concept of gainsharing and wrote the seminal book on the topic, saw the benefit of the organization sharing bottom-line results with the employees who created them.
This approach to offering employees rewards also gives us a way to re-think how to structure an individual employee’s monetary compensation.
Looking at the framework on page 139 in Chapter 37, at the individual level, for example, a company can give a share of product royalties to those employees who create value-added outcomes.
Companies often ask how much they should give to their value-producing stars.
Let’s look ahead to the definition of a job (which we will cover in much greater detail in Part 6 of the book). A job is an opportunity to create more present or future value than it costs to employ you.
Neymar, the Brazilian born soccer star, is the most expensive player in soccer’s history with a salary reported at $38 Million Euros. In 2017, his pro team, Paris Saint-Germain, paid a $220 million transfer fee to obtain him. The problem is that he has under-performed since his arrival and sits the bench much of the time.
As a counterexample to the 90-10-0 weighting preferred by Grace, we can compare two other employees below. Rian is a novice TV writer who doesn’t know if his show will get picked up by a broadcast network, let alone be successful.
Weighting rewards is a balancing act. Employers focused on the critical path will want to tie more rewards to value-added outcomes and less to effort inputs and throughputs. The company’s survival and success are totally dependent on those value-added outcomes.
Most companies pay most people for individual effort. If you show up on time, dress and act appropriately, and then do what you are assigned to do, you are very likely to get your weekly paycheck. As we saw earlier, once a year or so, you will be evaluated against a PE system that measures and rewards competencies, attitudes, and behaviors—not results and outcomes.
When designing rewards, it’s also important to look at the level of the behavior that you want to influence and what any worker can contribute at that level. People most often work at the individual level, doing their work within the appropriate schedule, budget, and work specifications.
When I work with companies, I suggest that they compare their reward systems to a critical path–linked framework. In keeping with the exhortations of Steve Kerr, author of “On the Folly of Rewarding A, while Hoping for B,” rewards need to: 1) incentivize exactly the behavior that you want; and 2) be correctly appropriate for that behavior.
A major lever to get people on the critical path is the reward system. But companies often waste the power of this lever by misaligning their rewards, which pushes people off the critical path.
Some employees don’t make critical path contributions directly. Instead, they enable others to make better contributions than they would without this person’s influence. For example, they are such good motivators that the critical path people with whom they interact turn out even better work. According to them, their “intangible” inputs and throughputs improve other people’s outputs and outcomes.
I once consulted to a very large oil company. It determined the exploration department’s success by counting how many wells they drilled each year. After 5 years, they had more new wells operating than any of their competitors. Success!
Kimberly-Clark Corporation, the maker of Kleenex, Huggies diapers, and toilet paper, was known for not measuring performance. Tenure in the company is what mattered and the company prided itself on a no-layoff policy. Employees had a job for life, and the company tolerated low performers.
F. Scott Fitzgerald, the American author of The Great Gatsby and The Last Tycoon, said that “Action is character.” By this he meant that you know who someone is by what they do, more than by what they say. (We will return to Fitzgerald in Part Five, when we consider what the critical path means for the individual employee.)
Too many companies do not use their levers to promote the critical path. Instead, these levers push people in directions that undermine it. For example, many performance evaluation systems rate behaviors that are not related to the critical path. This wastes a lever and causes employees to wonder if management knows what it is doing.
As you should know by now, the critical path is the guidestar for every worker and the entire company.
This need not be a mere abstraction. Below are just a few ways to keep the critical path before you at all times, and thus avoid wandering off it:
Companies don’t just create major detours off the critical path. They also create lots of potholes that make employees slow down or lose track of the critical path altogether. The most common cause is “make-work.”
To paraphrase Lewis Carroll in Alice in Wonderland, “If you don’t know where you are going, any road will get you there.” When employees are not driven by the company’s critical path, they will often take other, unproductive paths. Sure, they will be busy, but they will not be productive.
Just as you try to build and strengthen the critical path between you and your customers, your competitors are building their own critical paths…to those same customers. In fact, they want to destroy your critical path and have your customers all to themselves.
So the question becomes how to detect before too many customers defect.
First, you need to keep your attention focused on your best customers—the ones you really want because you can serve them well and profitably over a long period of time. They are your lifeblood.
